LARS P. SYLL

L’économie à l’épreuve des faits

Anatomie d’une triple crise

Des trois crises actuelles, l’environnementale est à la fois la moins immédiatement saisissable et sans doute la plus fondamentale au regard de l’effet transformateur qu’elle pourrait produire sur les sociétés. Il ne s’agit d’ailleurs pas à proprement parler d’une crise, laquelle suppose un « avant », un « pendant » et un « après » — une sortie de crise. Or, même à supposer que les pays industrialisés adoptent les mesures drastiques qui s’imposent en matière de réduction des émissions de gaz à effet de serre — et on en est loin —, le changement climatique provoque déjà des dégâts irréversibles. Ce que la « communauté internationale » peut faire, c’est limiter (considérablement) ces conséquences, mais non les inverser.

Pour y parvenir, il faut trouver des solutions audacieuses aux crises politique et économique. Le changement climatique offre une occasion de refonder la démocratie. L’adaptation des sociétés suppose de réorganiser de fond en comble la vie quotidienne des populations. Mais un tel bouleversement ne peut avoir lieu sans mobiliser ces dernières, sans s’appuyer sur leurs savoirs et leurs savoir-faire. La création de nouvelles institutions démocratiques à la base sera nécessaire.

En matière économique, l’annulation partielle ou totale de la dette publique représenterait une mesure écologique par excellence. Si l’État ne peut investir massivement dans la transition énergétique, c’est à cause d’une absence de volonté politique, mais aussi parce qu’il est prisonnier de ses créanciers. Crise politique, crise économique et crise écologique convergent, on le voit, en un seul et même problème.

Razmig Keucheyan / Le Monde diplomatique

Respect is not a gift. It is something you have to earn!

Every now and then yours truly gets some upset comments from people wondering why I’m not always respectful of people like Eugene Fama, Robert Lucas, Greg Mankiw, Edward Prescott, Thomas Sargent and others of the same ilk. Here’s a good hint at why it might sometimes be quite appropriate to be disrespectful:

Why can’t I be serious and respectful? Well, the answer is that we’re not having a serious conversation. There are real debates in economics — for example, about how much slack remains in the economy, how effective unconventional monetary policy really is, etc.. For those debates a respectful tone is appropriate. But when people resurrect 80-year-old fallacies, then claim that they never said what they said, then come right back with the same thing, we need colorful language to convey the deep unseriousness of their position.

Paul Krugman

Jean Tirole et la police de la pensée économique

Partisans de la concurrence non faussée, les économistes dominants la goûtent moins quand on les invite à la faire vivre dans leur profession. Reprenant une promesse de son prédécesseur Benoît Hamon, la ministre de l’éducation nationale Najat Vallaud-Belkacem s’était engagée en décembre 2014 à créer à titre expérimental une seconde section d’économie au sein du Conseil national des universités (CNU), l’organisme qui gère la carrière des enseignants-chercheurs. Intitulée « Institutions, économie, territoire et société », celle-ci aurait pu devenir un refuge pour les économistes hétérodoxes, mal aimés des représentants du courant dominant. L’école dite « néoclassique », qui repose sur l’hypothèse de la perfection des marchés et de la rationalité des individus, règne en effet depuis vingt ans sur l’actuelle section de sciences économiques, la «05». Trois cents chercheurs hétérodoxes se préparaient donc à rejoindre une nouvelle section d’économie politique pluraliste, critique et ouverte aux autres sciences sociales.

C’était sans compter le tir de barrage des « orthodoxes », bien décidés à tuer dans l’œuf toute possibilité d’une autre pensée économique. A peine avaient-ils eu vent du projet ministériel que le président de la « 05 », Alain Ayong Le Kama, envoyait un courrier au gouvernement, brandissant la menace d’une « démission collective » de la section. Mais l’offensive la plus décisive a été celle de Jean Tirole, lauréat en 2014 du prix de la banque de Suède en sciences économiques en mémoire d’Alfred Nobel (abusivement qualifié de « prix Nobel d’économie »). Il a adressé une lettre à Mme Vallaud-Belkacem pour empêcher une « catastrophe ». Mission accomplie : le projet a aussitôt été enterré.

Cette bataille apparemment corporatiste est en réalité hautement stratégique. Les représentations et préconisations des économistes exercent une forte influence sur les politiques publiques. Or, depuis une vingtaine d’années, les chercheurs hétérodoxes, c’est-à-dire tous ceux qui ne souscrivent pas à l’école néoclassique, soit à peu près un tiers des économistes français, sont exclus des positions-clés de la profession …

Cette hégémonie serait peut-être plus acceptable si elle n’allait pas de pair avec une abyssale faiblesse théorique. En 2007, la chose a commencé à se voir, même aux yeux de non-spécialistes. Non seulement les orthodoxes ont été incapables de prédire ou même de comprendre la crise des subprime, mais leurs hypothèses sur l’efficience des marchés avaient permis de légitimer scientifiquement la dérégulation financière qui en est en grande partie responsable …

Le retour en vogue de Keynes et de Karl Marx que l’on observe dans la presse et dans l’édition n’atteint pourtant pas le monde de la recherche, imperméable à toute remise en cause. Dans sa missive, Tirole s’enorgueillit des « centres d’excellence en économie qui ont émergé en France ces trois dernières décennies » et qui « forment aujourd’hui des économistes que les régulateurs, organismes internationaux et entreprises s’arrachent ». Le fait que ces « centres d’excellence » n’aient pas produit des économistes critiques, susceptibles d’alerter sur les dangers de la financiarisation, ne l’effleure manifestement pas. Droit dans ses bottes, il continue de mépriser souverainement les courants minoritaires, parlant d’eux comme d’un « ensemble hétéroclite en difficulté avec les normes d’évaluation internationalement reconnues », et les rappelle à l’ordre : « Chercher à se soustraire à ce jugement [des pairs] promeut le relativisme des connaissances, antichambre de l’obscurantisme. »

Laura Raim / Le Monde Diplomatique

Financial regulations

A couple of years ago, former chairman of the Fed, Alan Greenspan, wrote in an article in the Financial Times, re the increased demands for stronger regulation of banks and finance:

Since the devastating Japanese earthquake and, earlier, the global financial tsunami, governments have been pressed to guarantee their populations against virtually all the risks exposed by those extremely low probability events. But should they? Guarantees require the building up of a buffer of idle resources that are not otherwise engaged in the production of goods and services. They are employed only if, and when, the crisis emerges.

The buffer may encompass expensive building materials whose earthquake flexibility is needed for only a minute or two every century, or an extensive stock of vaccines for a feared epidemic that may never occur. Any excess bank equity capital also would constitute a buffer that is not otherwise available to finance productivity-enhancing capital investment.

That is — to say the least — astonishing. Not wanting to take genuine uncertainty or ‘fat tails’ seriously is ominous enough. Is there anything the year 2008 taught us, it is that the ‘tail risks’ are genuinely real and must be included in all financial calculations. But even worse is how someone – who surely ought to have read at least an introductory course in economics – can get the idea that demand for higher capital requirements of banks would be equivalent to building buffers of ‘idle resources.’ The claim is from an economist’s point of view absolute nonsense.

Capital requirements are about how the mix between debt and equity of banks’ balance sheets should look like. It is not a question of something having to be set aside. It is not about liquidity or reserve requirements. Capital requirements are not about pea soup in a jar that we should put on stock to have in a crisis. It’s about how much leverage we should allow banks to have.

Higher capital requirements simply mean that we demand that banks finance a larger portion of their portfolios out of equity and less out of money deposited or loans. There is nothing here about resource use, but about how banks should manage risks. And how they are distributed in an economically efficient manner.

Of course, higher capital requirements mean that banks’ risk-taking decrease. It is precisely because of this the requirements have been instituted. We saw in the recent financial crisis how the ‘systemic risk’ shot up when the banks were found to have taken on too great risks. Financial institutions authorized to operate with high leverage generate negative externalities. Of course, we have to — in the light of the financial crisis — ensure that banks operate under less leverage. Higher capital requirements are one way of achieving this.

Let me illustrate the mechanism.

Suppose a crisis would come and there would be a loss of 1 million USD, and the bank’s own capital is, for example, 5% of the balance sheet, that would force the bank to liquidate assets at a value of 20 million USD to regain the 5% level. Obviously, systems repercussions would be monumental. Higher capital requirements would both reduce the risk of liquidation, and the repercussions would be smaller (20% equity level would, in our example, reduce leverage to 5 million USD).

Suppose the initial balance sheet looks like this:

Loan: 100    Shareholders’ equity: 5
Liabilities: 95

Now if you raise the capital requirement from 5% to 20%, the bank can in principle react in three ways:

A: Assets Liquidation
Loan: 25   Equity: 5
Liabilities: 20

B: Recapitalization
Loan: 100 Shareholders’ equity: 20
Liabilities: 80

C: Assets Expansion
New assets: 12.5
Loans: 100  Shareholders’ equity: 22.5
Liabilities: 90

In both cases B and C it is evident that the higher capital requirements do not mean that the balance sheet must be reduced. Banks can continue to provide the economy with the necessary loans. Some negative effects on the banks’ ability to perform their basic system functions need not occur because one raises the capital requirements.

This is basics. That a former Federal Reserve chairman does not understand this is, to say the least, disheartening.

But maybe that is how it goes when you prefer reading Ayn Rand to Keynes or Minsky …

MMT — the Wicksell connection

Most mainstream economists seem to think the idea behind Modern Monetary Theory is something new that some wild heterodox economic cranks have come up with.

New? Cranks? How about reading one of the great founders of neoclassical economics — Knut Wicksell. This is what Wicksell wrote in 1898 on ‘pure credit systems’ in Interest and Prices (Geldzins und Güterpreise):

It is possible to go even further. There is no real need for any money at all if a payment between two customers can be accomplished by simply transferring the appropriate sum of money in the books of the bank …

A pure credit system has not yet … been completely developed in this form. But here and there it is to be found in the somewhat different guise of the banknote system …

We intend therefor, as a basis for the following discussion, to imagine a state of affairs in which money does not actually circulate at all, neither in the form of coin … nor in the form of notes, but where all domestic payments are effected by means of the Giro system and bookkeeping transfers. A thorough analysis of this purely imaginary case seems to me to be worth while, for it provides a precise antithesis to the equally imaginay case of a pure cash system, in which credit plays no part whatever [the exact equivalent of the often used neoclassical model assumption of ‘cash in advance’ – LPS] …

For the sake of simplicity, let us then assume that the whole monetary system of a country is in the hands of a single credit institution, provided with an adequate number of branches, at which each independent economic individual keeps an account on which he can draw cheques.

What Modern Monetary Theory (MMT) basically does is exactly what Wicksell tried to do more than a hundred years ago. The difference is that today the ‘pure credit economy’ is a reality and not just a theoretical curiosity — MMT describes a fiat currency system that almost every country in the world is operating under.

In modern times legal currencies are totally based on fiat. Currencies no longer have intrinsic value (as gold and silver). What gives them value is basically the simple fact that you have to pay your taxes with them. That also enables governments to run a kind of monopoly business where it never can run out of money. A fortiori, spending becomes the prime mover and taxing and borrowing is degraded to following acts. If we have a depression, the solution, then, is not austerity. It is spending. Budget deficits are not the major problem since fiat money means that governments can always make more of them.

Solow’s Nobel Prize lecture

One of the achievements of growth theory was to relate equilibrium growth to asset pricing under tranquil conditions. The hard part of disequilibrium growth is that we do not have — and it may be impossible to have — a​ really good theory of asset valuation under turbulent conditions …

One important tendency in contemporary macroeconomic theory evades this problem in an elegant but (to me) ultimately implausible way. The idea is to imagine that the economy is populated by a single immortal consumer, or a number of identical immortal consumers. The immortality itself is not a problem: each consumer could be replaced by a dynasty, each member of which treats her successors as extensions of herself. But no short-sightedness can be allowed. This consumer does not obey any simple short-run saving function, nor even a stylized Modigliani life-cycle rule of thumb. Instead she, or the dynasty, is supposed to solve an infinite-time utility-maximization problem. That strikes me as far-fetched, but not so awful that one would not want to know where the assumption leads.

The next step is harder to swallow in conjunction with the first. For this consumer every firm is just a transparent instrumentality, an intermediary, a device for carrying out intertemporal optimization subject only to technological constraints and initial endowments. Thus any kind of market failure is ruled out from the beginning, by assumption. There are no strategic complementarities, no coordination failures, no prisoners’ dilemmas.

The end result is a construction in which the whole economy is assumed to be solving a Ramsey optimal-growth problem through time, disturbed only by stationary stochastic shocks to tastes and technology. To these the economy adapts optimally. Inseparable from this habit of thought is the automatic presumption that observed paths are equilibrium paths. So we are asked to regard the construction I have just described as a model of the actual capitalist world. What we used to call business cycles – or at least booms and recessions are now to be interpreted as optimal blips in optimal paths in response to random fluctuations in productivity and the desire for leisure.

I find none of this convincing. The markets for goods and for labor look to me like imperfect pieces of social machinery with important institutional peculiarities. They do not seem to behave at all like transparent and frictionless mechanisms for converting the consumption and leisure desires of households into production and employment decisions. I can not imagine shocks to taste and technology large enough on a quarterly or annual time scale to be responsible for the ups and downs of the business cycle.

Robert Solow